The major domestic equity indexes closed out the first trading day of the new year nominally higher after stumbling out of the starting gate, as fears of a global economic slowdown were exacerbated after Apple reduced its current quarter revenue forecast.
After struggling for direction for much of the session, all three major indexes closed in positive territory. Whether those gains would hold in the days ahead, however, was cast into doubt after Apple reduced its outlook after the market closed, citing weak sales in China.
Apple’s stock fell 8 percent in extended trading after the news, while shares of its suppliers also weakened and S&P 500 e-mini futures fell about 0.5 percent, signaling that Wednesday’s modest advance was likely to be unwound when the market reopens on Thursday.
Stocks had started off the day on Wednesday in negative territory after separate reports showed a deceleration in factory activity in both China and the euro zone. The indication is that that the ongoing trade dispute between the United States and China is taking a toll on global manufacturing.
The energy sector led the S&P 500’s advance and the sector was the index’s largest percentage gainer, buoyed by a 2.4 percent jump in crude prices. The group was the worst performing S&P sector in 2018.
Gains were offset by healthcare and so-called defensive sectors, such as real estate, utilities and consumer staples. Healthcare companies provided the largest drag on both the S&P 500 and the Dow Jones indexes. Of the 11 major sectors in the S&P 500, seven closed in positive territory.
Banks received a boost from Barclays, as the broker wrote in a research note that the sector could outperform the S&P this year. The Dow was led higher with gains from Goldman Sachs and JPMorgan.
Tesla delivered fewer-than-expected Model 3 sedans in the fourth quarter and reduced prices of cars sold in the United States. The electric automaker’s shares fell 6.8 percent.
General Electric rose 6.3 percent in heavy trading as bargain hunters bought the stock in the wake of its over 50-percent decline in 2018.
In the coming weeks, the fourth-quarter reporting period will be underway. Analysts see S&P 500 companies posting profit gains of 15.8 percent, significantly smaller than the third quarter’s 28.4 percent advance.
Approximately 7.80 billion shares changed hands on the major domestic equity exchanges, as compared to the 9.18 billion share average over the past 20 trading days.
Yield Curve Flatter
The Treasury yield curve flattened on Wednesday afternoon as shorter-dated yields rose on higher oil prices, while at the long end, the benchmark 10-year Treassury was driven to an 11-month low by concerns about a global growth slowdown.
The 10-year Treasury yield was down 3 basis points, last at 2.66 percent, approaching the key level of 2.64 percent, a retracement of 50 percent from the 2018 high yield of 3.25 percent. Other safe-haven investments also benefited in price from the flight to quality.
Although opened sharply lower on Wednesday, the S&P 500 index has retraced most of its losses, down 0.13 percent, while the Dow Jones Industrial Average chalked up a small gain of 0.08 percent.
China’s factory activity contracted for the first time in 19 months in December, hit by the Chinese-U.S. trade war, the private Caixin/Markit PMI survey showed, with the weakness spilling over to other Asian economies.
The grim readings come ahead of the closely watched manufacturing survey on Thursday, payrolls data on Friday and the earnings season later this month, which is expected to show corporate earnings declined in the October-December quarter.
Oil prices rose about 4 percent in choppy trading on Wednesday, supported by gains in U.S. equity markets, but concerns remained about rising crude production and weakening global economic growth.
The yield on the two-year Treasury note rose on the back of oil prices, last up about half a basis point to 2.504 percent. Yields on long-dated maturities fell more than those at the short end rose, flattening the yield curve to a spread of 15.2 basis points between the two- and 10-year note yields.